THE CREDIT CRISIS: THE BUBBLING BOND MARKET RICK TOBIN
Asset Values may either Rise, Fall, or be Stagnant
From various regional market peaks across the USA, many homes or commercial properties reached their alltime market value highs anywhere between 2006 and 2008, depending upon their region. After “Stated
Income”, “100% Loans”, “EZ or No Doc Loans”, and very low adjustable rate mortgage loans (starting rates
beginning in the 1% range) started to disappear following the start of the Credit Crisis, then home values began
to drastically fall in value.
From my perspective, the number #1 reason why home values either rise or fall, is related to the ease and
availability of capital or loans to either help one buy or sell their homes. When money is “easy” and more readily
accessible, then there are typically more buyers for real estate. An increased demand for a home or any other
type of asset or consumer goods product typically leads to an increase in prices. Conversely, a decreased
demand for an asset class or a consumer goods product historically has led to a decreased value or sales price
for this same asset or product.
When too little money chases too few goods, then asset prices may begin to fall across the board regionally,
nationally, or world-wide. Additionally, when access to capital begins to get more challenging by way of higher
interest rates, tougher underwriting guidelines, fewer liquid or solvent equity investors or lenders, and / or more
difficult regional, state, or national regulations, then home prices tend to fall as we have seen during several
different “Boom and Bust” housing cycles over the past few decades.
QE to the “Rescue”?
Over the past few years, our financial and governmental
leaders have attempted a wide variety of alleged “bailouts” in
order to better stimulate the financial and housing markets.
QE (or “Quantitative Easing”), once again, may be effectively
akin to “creating money out of thin air in order to buy up more
stocks,
bonds,
mortgages,
and
other
assets.”
Prime
examples of the impact of QE policies in recent years, for
better or worse, include the 15,000+ Dow Jones index values
as well as annual home price value increases of double digits
over the past year or two in various regions nationally (i.e.,
Las Vegas, Phoenix, Los Angeles, etc.)
The downside of QE policies has been related to rampant
inflation for consumer goods like food and gasoline. When
our financial leaders flood the markets with trillions of dollars